Cryptocurrency Regulation in 2018: Part 1

If 2017 was the year of the ICO, it seems as if 2018 is destined to become the year of regulatory reckoning. Things have already begun to heat up as countries around the world grapple with cryptocurrencies and try to determine how they are going to treat them. Some are welcoming, others are cautious. And some countries are downright antagonistic. Here is a brief overview of how different countries from various regions are treating cryptocurrency regulations.

United States

The United States, at the time of this writing, has no coherent direction on its cryptocurrency regulation other than that there will be some soon. The Securities and Exchange Commission (SEC) has warned investors of cryptocurrency investing risks, halted several ICOs and hinted at the need for greater cryptocurrency regulation.

The Commodity Futures Trading Commission (CFTC) became the first U.S. regulator to allow for cryptocurrency derivatives to trade publicly, then organized meetings to talk about possibly changing the rules for cryptocurrency derivatives clearing (one of the meetings was postponed due to the federal government shutdown).

Canada

The Financial Consumer Agency in Canada does not consider cryptocurrencies to be “legal tender,” excluding all but Canadian bank notes and coins from that definition. The True North, however, is not all harsh on its cryptocurrency regulatory stances. In fact, it appears to be the most transparent country in this list when it comes to understanding laws surrounding the digital currency industry (aside from Switzerland, which wants to be “THE crypto-nation”).

After weeks of hearings, which included testimony from experts like Andreas Antonopoulos, the Canadian Parliament approved Bill C-31 on June 19, 2014, the world’s first national law on digital currencies. The Canadian government has been communicative in its regulatory stances on cryptocurrency ever since: the Canadian Securities Administrators (CSA) sent out a regulatory notice on August 24, 2017, confirming “the potential applicability of Canadian securities laws to cryptocurrencies and related trading and marketplace operations and to provide market participants with guidance on analyzing these requirements.”

Australia

In the wake of the August 2017 financial scandal surrounding the Commonwealth Bank of Australia, the Australian government sought to follow in Japan’s footsteps by strengthening its anti-money laundering laws and regulating digital currencies. This differed slightly from the view in 2015 that the Aussie government would seek a “hands-off” approach to cryptocurrencies. Still, the lack of more concise regulation has purportedly had a negative impact on the country as the end of 2017 saw Australian cryptocurrency brokers halt Australian dollar deposits. December 2017 also saw an issuance from the Australian Taxation Office (ATO) which hinted at the way potential future regulation could go. The ATO guidance stated:

Transacting with bitcoin is akin to a barter arrangement, with similar tax consequences. Our view is that bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.

Australia, however, has supporters of digital currencies in government, as August 2017 saw senators from both major parties (Labor and Coalition) stepping forward to call on the Reserve Bank of Australia (RBA) to accept cryptocurrencies as an official form of currency. Therefore, the future of further cryptocurrency regulation remains uncertain but potentially industry-friendly in the land down under.

United Kingdom/European Union

While Brexit is scheduled to force the U.K. and the European Union to part ways in March 2019, the United Kingdom and the EU remain united in their plans to regulate cryptocurrencies. On December 4, 2017, The Guardian and The Telegraph reported that the U.K. Treasury and the EU both had made plans aimed at ending anonymity for cryptocurrency traders, citing anti-money laundering and tax evasion crackdowns.

The European Union plan would require cryptocurrency platforms to conduct proper due diligence on customers and report any suspicious transactions. Likewise, the Treasury of the United Kingdom stated that they are “working to address concerns about the use of cryptocurrencies by negotiating to bring virtual currency exchange platforms and some wallet providers within anti-money laundering and counter-terrorist financing regulation.” The Treasury did, however, add that “there is little current evidence of [cryptocurrencies] being used to launder money, though this risk is expected to grow.”

While one European Union commissioner, Pierre Moscovici, stated in an interview with Bloomberg on December 18, 2017, that the EU was not looking to regulate bitcoin, the commissioner’s statements seemed out of sync with prior and consequential messaging. Two days later, Moscovici’s message was seemingly countermanded by Valdis Dombrovskis, vice president of the European Commission (the Executive for the European Union), when he told reporters in Brussels that:

On January 22, 2018, Dombrovskis furthered his regulatory agenda for cryptocurrencies by writing three of the EU’s watch dogs warning them of a bubble in bitcoin. On January 25, 2018, embattled U.K. Prime Minister Theresa May joined the fray, echoing the sentiments of International Monetary Fund head Christine Lagarde and U.S. President Donald Trump. When speaking to Bloomberg during the World Economic Forum at Davos, the prime minister stated, “We should be looking at these very seriously — precisely because of the way they can be used, particularly by criminals.”

While the U.K. and EU have not announced finalized regulations of cryptocurrencies, an expected announcement is likely due in the spring.

Switzerland

Switzerland, known for its progressive attitudes toward individual rights in banking, has kept a similar attitude toward cryptocurrency regulation. The Western European country is conspicuously absent from the European Union and appears to have an open attitude toward the cryptocurrency industry.

Johann Schneider-Ammann, economics minister, told reporters on January 18, 2018, that he wants Switzerland to be “the crypto-nation.” According to an article by the Financial Times, Jörg Gasser, state secretary at the Swiss finance ministry, stated, “We want it [the ICO market] to prosper but without compromising standards or the integrity of our financial markets.”

To that end, on January 18, 2018, the Swiss set up an ICO working group with an aim to “increase legal certainty, maintain the integrity of the financial center and ensure technology-neutral regulation.” The working group will report to the Swiss Federal Council by the end of 2018.

Russia

Russia, like South Korea, can’t seem to decide how it wants to handle cryptocurrency regulations. In September 2017, Russian Federation Central Bank chief Elvira Nabiullina said the central bank was against regulating cryptocurrencies as currency (as a payment for goods and services) and against equating them with a foreign currency. This statement seemed to indicate a progressive hands-off approach was in store for the cryptocurrency industry in Russia.

However, on September 8, 2017, the deputy finance minister for the Russian Federation, Alexei Moiseev, told reporters at a Moscow financial forum that settlements of payments in cryptocurrencies “are not legal now.” The deputy minister continued, stating, “Obviously, now there is a legal vacuum, and accordingly it’s hard for me to say if these actions are legal or not.”

Until these statements, the position proposed by the Russian federation was to allow only “qualified investors” to deal with cryptocurrencies. Russian President Vladimir Putin sided with the position of the Finance Ministry on October 11, 2017, when the president said that the use of cryptocurrencies carries serious risks, being an opportunity for laundering criminal capitals, evading taxes, financing terrorism and spreading fraudulent schemes that would victimize Russian citizens.

The Finance Ministry continued its strict regulatory posturing by suggesting a taxation on cryptocurrency mining ventures on December 28, 2017. The new year began with even more hints at a Russian crackdown on cryptocurrencies, as Putin again sided with the Ministry of Finance on January 11, 2018, when he remarked that legislative regulation of the cryptocurrency market may be needed in the future.

President Putin stated, “This is the prerogative of the Central Bank at present and the Central Bank has sufficient authority so far. However, in broad terms, legislative regulation will be definitely required in the future.” (translation by TASS)

Two weeks later, on January 25, 2018, the Finance Ministry published a draft law “On Digital Financial Assets.” The law, if finalized, would define tokens, establish ICO procedures and determine the legal regime for cryptocurrencies and mining.